Small business survey on impact from COVID-19

Michael Steffano

This is an excerpt from the recent survey completed by the National Bureau of Economic Research (NBER) – How Are Small Businesses Adjusting to COVID-19? Early Evidence from a Survey – NBER Working Paper No. 26989 Issued in April 2020.

The current COVID-19 is creating increased economic pressure on all businesses but is critical for small businesses.

Abstract

“To shed light on how COVID-19 is affecting small businesses – and on the likely impact of the recent stimulus bill, we conducted a survey of more than 5,800 small businesses. Several main themes emerge from the results. First, mass layoffs and closures have already occurred. In our sample, 43 percent of businesses are temporarily closed, and businesses have – on average – reduced their employee counts by 40 percent relative to January. Second, consistent with previous literature, we find that many small businesses are financially fragile. For example, the median business has more than $10,000 in monthly expenses and less than one month of cash on hand. Third, businesses have widely varying beliefs about the likely duration of COVID related disruptions. Fourth, the majority of businesses planned to seek funding through the CARES act. However, many anticipated problems with accessing the aid, such as bureaucratic hassles and difficulties establishing eligibility.”

Notable comments:

“A survey of small businesses finds that when firms are told to expect a one-month crisis, the expectation of remaining open by the end of the year hovers around 70% across all industries with the exception of Arts and Entertainment, and Personal Services. In those industries, the expectation of remaining open drops to 65% and 57% respectively.”

“When firms are told to expect a six-month crisis, the average expectation of remaining open falls to 38%, and there is significant heterogeneity between sectors. The expected survival probability for firms in Arts and Entertainment drops precipitously to 35% if the crisis lasts 6 months. The expected probability of being open for Personal Services firms fall to 22% if the crisis lasts six months.”

“The restaurant industry seems particularly vulnerable to a long crisis. Restaurateurs believe that they have a 72% chance of survival if the crisis lasts one month, but if the crisis lasts six months, then they expect to survive with only a 15% probability. Likewise, the chance of survival for firms in tourism and lodging drops to 27% by the 6-month mark.”